Regulator curbs Envestra’s program

Gas distributor
Envestra
is in for a stoush with the Australian Energy Regulator after draft decisions for its Queensland and South Australian networks undercut the company’s proposed $695.5 million investment program.

Under the terms of AER’s draft proposal, Envestra will spend some $536.2 million over the next five years to replace about 1300 kilo­metres of ageing gas pipes.

According to the regulator’s plan, Envestra’s rate of return has been set at 10 per cent, rather than the 10.6 per cent the company had asked for in its SA and Queensland networks. AER also proposes to cap increases in retail gas bills at about half those proposed by Envestra.

Envestra said it would “engage in a constructive dialogue" with AER.

“While there were some encouraging aspects of the draft decision, the AER’s 600-page report contained a large number of matters that had been inadequately addressed or understood," Envestra managing director
Ian Little
said.

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In SA, Envestra delivers gas to about 406,000 residential, commercial and industrial customers. In Queensland, it delivers gas to about 87,000 customers.

Reviewing the company’s proposals, AER chairman Andrew Reeves said some expenditure was justified, but some was not.

“Envestra proposed a significant capital expenditure program on mains replacement to address the safety risk, inadequate capacity and deteriorating condition of the distribution network," Mr Reeves said of Envestra’s SA proposal. “This additional expenditure is required to maintain the safety and reliability of the network and reduce gas leakage."

But AER disallowed other spending, potentially cutting Envestra’s SA outlay by 20 per cent, and Queensland spending by 30 per cent.

APA Group’s APT Allgas business, estimated to account for about 10 per cent of its enterprise value, also received a draft decision, but JPMorgan analyst Jason Steed thought it more favourable.

“Given that APA’s capex has been approved in full and that they’ve been granted 90 per cent of their opex, they’ve done reasonably for the draft stage of a determination," he said.